Trulieve Cannabis Corp

Good morning and welcome to the True Leave Cannabis Corp. First Quarter 2023 Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Christine Hersey, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer, and Alex D'Amico, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. Steve White, President, will also be available to answer questions. This morning, we reported first quarter 2023 results. A copy of our earnings press release and PowerPoint presentation may be found on the investor relations section of our website, www.truelieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical fact constitute forward-looking statements, and these statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially, from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including item 1A, risk factors of the company's annual report on Form 10-K for the year ended December 31st, 2022. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for truly financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings tax release that is an exhibit to our current report on Form 8K that we furnished to the SEC today and can be found in the investor relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our financial results. Please be advised that we may or may not continue to provide these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers.

Thanks, Christine, and good morning, everyone, and thank you for joining us today. We are pleased to report first quarter results and share recent wins as we execute on our strategic plan. Before we dive into results, I'd like to briefly discuss the cannabis industry and the tremendous opportunities set ahead. Today, more than 80% of the U.S. population resides within states that have adult use and or medical cannabis programs. Adoption continues to rise with greater access to regulated and tested products. Consumers are increasingly turning to cannabis to deliver a variety of experiences, including relief from severe and chronic conditions, anxiety, insomnia, and pain, as well as recreation. Over the next few years, we expect more states will enact programs that not only provide access to cannabis, but also create jobs and generate tax revenue. Barring any federal reform, U.S. legal cannabis sales are expected to reach over $70 billion by 2030, almost tripling from $26 billion in sales last year. Turning now to our results. First quarter revenue of $289 million was in line with our expectations in historical seasonal performance. GAAP gross margin improved to 52%, up from 50% in the fourth quarter. On top of margin improvement, the team delivered a $24 million reduction in SG&A expenses. Adjusted EBITDA was $78 million, or 27% margin, representing our 21st consecutive profitable quarter. As we highlighted during the fourth quarter call, our near-term focus is on cash preservation and generation, while leaning into strategic priorities that will continue to differentiate Trulieve in the years ahead. For the full year, we are targeting operating cash flow of $100 million. We expect to generate positive free cash flow in 2023. Cash preservation efforts are geared toward expense reduction and harnessing greater efficiencies across the organization. As I mentioned, this quarter, SG&A was reduced by roughly 20% as we further refined staffing and production levels to more closely align with current traffic and consumption. Adjustments to procurement processes and rationalization of vendors and duplicative services also contributed to lower expenses. These efforts will be ongoing. We generate cash through both scale and service. Since inception, Trulieve has invested heavily to build scale and develop world-class customer service. Both are true competitive differentiators, particularly within the current macroeconomic environment. Taking a closer look at our scaled operations. Trulieve has the largest retail network in legal cannabis with 186 dispensaries. This is supported by over 4 million square feet of production capacity. In addition to having significant capacity, it is also flexible. We can ramp up or pull back utilization as needed to align with shifting demand trends. The ability to increase volume significantly and change production mix to match evolving customer preferences is a direct result of the flexibility built into our modular production. Our data and technology platforms enable quick adjustments to marketplace changes, providing an edge compared to peers. At various times, we have pivoted due to rapid change. For example, with accelerated growth during COVID when we quickly ramped production to meet higher demand. More recently, in light of economic conditions, value tier products have represented the fastest growing segment. In response, we have expanded offerings within our value brand role one product line. New launches include larger volume products, such as 28-gram ground flour and supersized 4.5-gram eights, as well as minis, pre-rolls, and cured crumble, wax, and shatter. The ability to quickly pivot is a competitive advantage versus peers who lack sufficient capacity and capital to make impactful changes in this environment. When the current cycle inevitably turns and consumer preferences shift, we will be able to identify trends and adapt yet again to meet demand. Given our unique scale and our home state of Florida, there are opportunities to differentiate our position. Four years ago, we set out to build a state-of-the-art indoor cultivation facility with automation and a unique workflow layout. The facility was designed to lower production costs while allowing higher touches for each plant. We began ramping production at this facility last summer, and we are just beginning to reap the rewards of the strategic asset. In the first quarter, output at the new facility exceeded our plan by 17%. Even with the outperformance at the new facility, inventory in the first quarter was flat as we executed our strategic plan to wind down inventory this year. We expect the site will be fully planted by the end of Q2 and fully ramped by the end of this year. Once fully ramped, output from the new facility will be the equivalent of roughly 30 legacy design buildings, but with reduced cycle time and labor costs and lower usage of electricity, water, and fertilizer. Lower production costs at this site allow us to pass on a portion of savings to customers while protecting margins. As the new facility comes online, we continue to pull back utilization at legacy design sites, banking capacity for future use when demand accelerates. With these adjustments, indoor cultivation capacity represented the majority of our online capacity exiting the first quarter. We believe large-scale production of high-quality indoor flower is another meaningful differentiator relative to peers. Moving on to our second pillar for cash generation, service. We often say at Trulieve that we are customer-obsessed. We know that providing exceptional customer service on a consistent basis is absolutely required to reinforce loyalty and attract new customers. Service standards are met through a combination of convenience, ease of transaction, branded product availability and promotion, and attentive and knowledgeable staff. Data and technology are utilized to understand the customer journey and gather feedback that informs our approach. Clear delineation of brand segmentation and value proposition plays an important role in customer acquisition and retention. In-store customer education programs designed to expand product knowledge and empower the customer to take ownership of their cannabis journey elevate our service. Success is measured through a variety of metrics, including customer retention. First quarter customer retention was 64% company-wide and 73% in medical-only markets. Later this year, we are relaunching our customer loyalty program with enhanced features, including a points-based rewards program designed to increase brand loyalty and customer retention. The power of our scale and service was evident during 420, with new records set for transactions and units sold across our branded retail network. On 420, we sold approximately 360,000 units, and completed over 68,000 individual transactions, up 10% and 9% respectively from last year. Our dedicated retail and customer service staff, wide ranging product assortment, depth of inventory, and data and technology infrastructure all contributed to our success on 420. Alongside initiatives to optimize scale and service, we are making strategic investments to prepare for future growth. First, we are investing in new markets and expansion opportunities within our footprint. Second, we are allocating resources to build out critical infrastructure to provide a stronger foundation for our strategic plan. Near-term growth opportunities include new market expansion in Georgia and Ohio in Q2, the launch of adult e-sales in Maryland in July, and adult e-sales in Florida in mid-2025. We recently celebrated the grand opening of two medical dispensaries in Georgia, the first to operate in the state. We plan to open three more this year, supported by our production facility in Adele. The Georgia program is reminiscent of the initial market in Florida, and we look forward to participating in market development and growth. In Ohio, we will open our first medical dispensary soon, pending regulatory approvals. In Maryland, where Trulieve operates a production site and three retail locations, we are preparing for the launch of recreational sales on July 1st. The adult use opportunity in Florida is the most significant near-term catalyst for Trulieve. We continue to support Smart and Safe Florida, an adult youth ballot initiative. As of early May, the campaign has gathered sufficient raw signatures for inclusion on the November 2024 ballot. With 22 million residents and 138 million annual tourist visits, we believe Florida will be a top legal cannabis market, reaching $6 billion in annual revenue. Truly's outsized leading market share of 40% eclipses the next three closest competitors at 10% to 12% market share. Given our leading market share, scale, and service, and ability to quickly flex up production with minimal investment, Trulieve is uniquely positioned for this opportunity. Turning now to our data and technology infrastructure, we are continuing to invest in expanding our capabilities this year. Driving improved customer experiences and retention are critical components of our long-term strategy. In-house data collection and analytics capabilities enhance our customer outreach, providing a meaningful competitive edge. Hyper-personalized marketing, geo-targeting, and strategically-driven promotional activity are all made possible by our advanced data and technology platforms. We believe these investments are necessary to remain one step ahead in today's evolving landscape and set the foundation for a future defined by integrated commerce. In summary, our team is laser-focused on cash preservation and generation as we set the stage for the next phase of accelerated growth. With our scale and service, operational flexibility, and strong balance sheet, I'm fully confident in our strategic positioning and our team's ability to unlock the full potential of Trulieve. With that, I'll turn the call over to Alex.